What Amazon’s HQ2 could mean for winning city’s rents

Originally published April 25, 2018 at 4:09 pm
Updated April 25, 2018 at 8:37 pm

A neighborhood in East Nashville. It’s possibile Amazon could locate its second headquarters in Nashville. (KYLE DEAN REINFORD/NYT)

Zillow estimates that rents in Nashville, one of 20 finalists for Amazon’s second headquarters, would rise 3.3 percent a year if it landed HQ2, almost four times as fast as currently projected. Other cities could also see big increases if Amazon picks them.

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When Amazon announced in January that Nashville, Tennessee, had made the list of 20 finalists being considered for its second North American headquarters, city leaders cheered. They saw the project as the next step in Nashville’s transformation from country-music capital into a regional and even national economic force.

To some locals, Amazon represented something else: more people, more traffic and, most of all, higher rents in a city where a rising share of residents were already struggling to afford a place to live.

“With the onslaught of new people, with the onslaught of higher-income earners, I just think it’s going to further exacerbate what’s already a crisis situation,” said Paulette Coleman, a local affordable-housing advocate.

Coleman has reason to worry. A new analysis from the real-estate site Zillow estimates that rents in Nashville would rise 3.3 percent per year if the Tennessee capital landed the Amazon campus, almost four times as fast as currently projected. After a decade, that could translate into Nashville residents paying $400 more per month in extra rent because of the project.

Other cities could also see big increases if Amazon picks them. Monthly rents in Boston and Los Angeles could jump by even larger amounts in dollar terms — albeit from a higher starting point — reflecting a shortfall in rental housing construction. Denver — like Nashville, a midsize city that has seen brisk population growth in recent years — could see its already rapid rate of rent increases hit nearly 6 percent per year, triple the overall rate of inflation.

“I definitely think it has the possibility of pushing us over the tipping point,” said Felicia Griffin, executive director of United for a New Economy, a Colorado nonprofit that has opposed the Amazon project.

Some potential locations would be less severely affected. Atlanta and Chicago, big cities that have made it relatively easy to build new housing in recent decades, would see only a small rent increase if they won the Amazon project.

And Indianapolis, where population growth has been slow and housing is plentiful, would see no effect on its rents at all, according to Zillow’s model. Even in those cities, however, neighborhoods near the Amazon campus would most likely see significant rent increases. (The study did not look at the effect on prices of owner-occupied homes.)

Amazon has provided few details about what it plans for the new campus, known as HQ2, other than that it could eventually be a base for up to 50,000 employees earning an average of about $100,000. The company has not said whether it prefers to build downtown, as it has at its current headquarters in Seattle, or will opt instead for a suburban office park — a decision that could have significant implications for the project’s effect on local housing costs. Though it mentioned the issue only in passing in its request for proposals last fall, Amazon says it will take such costs into account, and has met with affordable-housing groups in several of the finalist cities.

Zillow cautions that its estimates are rough, based on a simple model that looks at how rents in each city have responded to past influxes of workers. If the cities respond differently to Amazon’s arrival — for example, by building more housing — the effect on rents could be smaller than Zillow’s model estimates.

But there are also reasons to think Zillow’s analysis could understate Amazon’s potential effect. The model looks only at the effect of the jobs that the new campus is expected to create directly. If Amazon’s presence draws other businesses to the area, rents could rise even faster.

That is what has happened in Seattle, where a mini-Silicon Valley has sprung up around Amazon’s downtown campus. Facebook, Google and other internet giants have opened satellite offices nearby, and startups — including Zillow itself — have their headquarters there.

The boom has been good for Seattle’s economy, which has experienced years of steady job growth, low unemployment and, unlike much of the country, strong wage gains. But it has also become a far less affordable place to live.

Rents in Seattle now rival those in Boston and New York, and home prices are rising faster there than in any other big city. Amazon says it has contributed more than $40 million to affordable-housing projects in the city, as part of obtaining approval for its plans.

Whichever city wins the HQ2 sweepstakes will enjoy one big advantage over Seattle: advance warning. Aaron Terrazas, a Zillow economist who led the rent analysis, said Amazon’s growth caught Seattle by surprise, and the city struggled to build enough housing to accommodate the influx of young, affluent tech workers. Whichever city is chosen, Terrazas said, needs to move quickly to build.

“What’s so important is once a city is selected that they start to get ahead of the curve,” Terrazas said.

Jenny Schuetz, a Brookings Institution economist who has studied housing policy, said cities would be wise to start planning for HQ2 even before Amazon announces its decision, which is expected sometime this year. The good news, Schuetz said, is that the steps cities should be taking to prepare for Amazon are largely the steps they should be taking anyway, like improving transit systems and easing regulations that make it hard to build in the places people want to live.

Amazon, Schuetz added, should also take housing costs, traffic congestion and related issues into account. After all, she said, Amazon will not benefit if its workers cannot find places to live, or if they are viewed by existing residents as a hostile force.

“It’s going to be a long-term relationship,” Schuetz said. “To retain good workers over the long haul, you should care about what housing costs could be.”